Realindex Australian Small Companies - Class A (Gross of Fees) Flyer

31 Dec 2018

Fund strategy Fund facts The Realindex Australian Small Companies Fund selects and weights companies according to their economic footprint Benchmark ASX Small Ords Accum defined by fundamental measures of company size such as (sales, cash flow, book value and dividends). The Fund is Funds under management $939.2 million further enhanced by applying additional screens such as quality and near term value. Inception Date 17 November 2008

Commentary The Realindex Australian Small Companies Fund returned -8.73% (gross of fees) during the final quarter of 2018, outperforming the S&P/ASX Small Ordinaries benchmark which returned -13.70%.

As mentioned in previous months, the portfolio is well positioned in companies with solid fundamentals that have been neglected or have lagged in what has been a strong growth market. With the market selling-off over the last quarter of 2018 this positioning has delivered strong positive relative performance, spread across all sectors.

The largest positive to relative performance by far was positioning within the Materials sector. Leading the outperformance was the portfolio’s net overweight to gold companies including OceanaGold (+17.7%, the portfolio’s largest holding), Silver Lake Resources (+7.8%) and Perseus Mining (+10.5%) after the gold price rose +7.1%. The portfolio also benefitted from not holding lithium explorers (-23.5%) and (-30.6%) after the price of lithium fell over the quarter.

The portfolio also benefitted from a large underweight allocation to the Energy sector which suffered on the back of a sharp fall in the oil price (Brent Crude -35.0%). Most notable were the portfolio’s zero-weight or underweights to smaller, highly oil leveraged companies including FAR (-41.7%), Sundance Energy (-55.6%) and Senex Energy (-45.0%). The largest stock level contributor to performance came from not holding Worleyparsons (-44.5%) which suffered from both its exposure to the Energy sector and the market’s negative reaction to a large acquisition in the US. The portfolio does not hold this stock as it is considered a large company under the strategy’s methodology of weighting companies by accounting measures.

Additional ‘large companies’ not held by the portfolio that contributed positively to performance included (-37.3%), (-45.0%) and (-22.2%). These more than offset the detraction from not holding Graincorp (+17.3%) and (+8.9%). An overweight allocation to safe haven sector, REITs (the only sector not in the red over the quarter), was also a strong contributor. Amongst the largest contributors were overweights to Charter Hall Retail REIT (+8.9%), BWP Trust (+8.3%) and REIT (+5.4%).

Finally, the portfolio was a beneficiary of the large sell-off globally within the Information Technology sector. Significant underweight holdings in very expensive market darlings including Wisetech Global (-23.5%) and (- 20.6%) and not holding Touch (-30.9%) supported performance. However, despite being high profile, the aggregate contribution was not as high as from the other sectors mentioned above.

M&A activity also stepped over the quarter with more than ten stocks in the portfolio being takeover targets, the highest number in the portfolio’s 10 year history. The portfolio was overweight all but one (Graincorp) of these targets, including Watpac (+35.0%), Greencross (28.3%), (+24.9%) and Navitas (+13.2%).

The portfolio offers a valuation discount to the market-cap benchmark, as measured by price-to-sales (3.2x vs. 4.0x) and price-to-book (2.3x vs. 2.6x), as well as a dividend yield higher than the benchmark (4.4% vs. 3.3%).

Note: Percentage figures in parenthesis show total return in Australian dollars for the quarter ending 31 December 2018 unless otherwise noted.

Since Gross performance 1 month 3 month 6 month 1 year 2 year 3 year 5 year 7 year inception Realindex Australian Small Companies - Class A (Gross of Fees) -0.82% -8.73% -8.75% -5.57% 4.64% 11.20% 8.86% 12.25% 12.14% ASX Small Ords Accum -4.18% -13.70% -12.75% -8.67% 4.70% 7.45% 5.62% 4.82% 6.69% Outperformance 3.36% 4.96% 3.99% 3.09% -0.06% 3.75% 3.24% 7.43% 5.45%

Top 10 holding comparison ASX Small Ords ASX Small as at 31 Dec 2018 Fund Accum Active Weight Sector Holding comparison Fund Ords Accum Active Weight OceanaGold Corp Shs Chess Depository Interests repr 1 shs 2.06% 0.21% 1.85% Energy 1.81% 6.28% -4.47% 1.96% 0.57% 1.39% Materials 16.70% 19.51% -2.81% Limited 1.69% 0.59% 1.10% Industrials 7.57% 6.97% 0.60% Australian Pharmaceutical Industries Ltd 1.55% 0.33% 1.22% Consumer Discretionary 19.69% 14.79% 4.91% Event Hospitality & Entertainment Ltd. 1.50% 0.00% 1.50% Consumer Staples 7.38% 9.09% -1.71% Inghams Group Ltd. 1.50% 0.61% 0.89% Health Care 6.30% 6.23% 0.07% SKYCITY Entertainment Group Limited 1.49% 0.59% 0.90% Financials 7.54% 8.21% -0.67% A.P. Eagers Limited 1.41% 0.00% 1.41% Information Technology 4.85% 10.57% -5.72% Platinum Asset Management Ltd 1.40% 0.63% 0.77% Communication Services 9.64% 5.91% 3.73% Brickworks Ltd 1.34% 0.77% 0.56% Utilities 1.91% 0.45% 1.45% Real Estate 16.61% 11.99% 4.62%

Top 5 relative contributors for the last 3 months Value added Top 5 relative detractors for the last 3 months Value lost Worleyparsons Limited 0.87% Graincorp Limited Class A -0.30% OceanaGold Corp Shs Chess Depository Interests repr 1 shs 0.45% A.P. Eagers Limited -0.18% Seven Group Holdings Limited 0.31% Washington H. Soul Pattinson and Co. Ltd. -0.18% Afterpay Touch Group Ltd. 0.25% Mineral Resources Limited -0.15% Inghams Group Ltd. 0.25% Saracen Mineral Holdings Limited -0.13%

Contact To find out more, please contact us on 1300 809 204 or email [email protected]. Disclaimer Product Disclosure Statements (PDS) for the Realindex Australian Small Companies Fund, (ARSN 132 950 175) (Fund) issued by Colonial First State Investments Limited ABN 98 002 348 352 AFSL 232468 (CFS) are available from Realindex Investments. Investors should consider the relevant PDS before making an investment decision. Past performance should not be taken as an indication of future performance.

The of (Bank) and its subsidiaries do not guarantee the performance of the fund or the repayment of capital by the fund. Investments in the fund are not deposits or other liabilities of the Bank or its subsidiaries, and investment-type products are subject to investment risk including loss of income and capital invested.

No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of Realindex Investments Pty Limited (Realindex). This material contains or is based upon information that we believe to be accurate and reliable. While every effort has been made to ensure its accuracy none of CFS or Realindex offers any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. This material has been prepared for the general information of clients and professional associates of CFS and Realindex. To the fullest extent allowed by law, CFS and Realindex exclude all liability (whether arising in contract, from negligence or otherwise) in respect of all and each part of the material, including without limitation, any errors or omissions. This material is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render specific advice. It is not an offer document, and does not constitute a recommendation of any securities offered by any of CFS or Realindex. No person should act on the basis of any matter contained in this material without obtaining specific professional advice. Past performance is not an indication of future returns. All monetary amounts are in Australian dollars, unless otherwise indicated. Realindex is an investment management division of Colonial First State Group, which is wholly owned by Commonwealth Bank of Australia ABN 48 123 123 124. Copyright © Colonial First State Group Limited 2019 All rights reserved.

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